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HSBC said the Turkish central bank’s decision to restart one-week repo auctions strengthened expectations that interest rate cuts would resume in September, while the bank expects the policy rate to fall to 34% by the end of 2026.
The Central Bank of the Republic of Türkiye (CBRT) resumed weekly repo auctions on Monday and began providing funding again at the one-week repo rate of 37%, according to an HSBC Global Investment Research report on Türkiye’s interest-rate market.
The weekly repo operations had been suspended since March 2026. After fighting broke out in the Middle East, the central bank provided market liquidity through its 40% overnight lending rate instead.
HSBC said the restart of the repo auctions was largely expected, although the timing had remained uncertain. Following the decision, government bond yields and the OIS curve fell by 50-60 basis points, while spreads along the yield curve steepened during the day.
OIS pricing now points to a rate cut of about 40 basis points at the September Monetary Policy Committee meeting and cumulative easing of roughly 170 basis points through the end of the year, the report said.
HSBC Economics has a more dovish outlook than current market pricing. It expects the central bank to resume rate cuts in September and reduce the one-week repo rate to 34% by the end of 2026.
The bank also sees significant upside potential for local bonds and the OIS curve under a more favorable scenario. HSBC forecasts inflation to fall to 15% in 2027 and the policy rate to decline to 20% by the end of that year. If those forecasts materialize, Turkish lira bonds could see a stronger rally, the bank said.
Despite its dovish forecast, HSBC is not yet prepared to aggressively follow the recent decline in interest rates at current levels. The bank said the threshold for a new rate-cut cycle that could begin on Sept. 10 was higher because risks linked to regional conflicts remained.
HSBC noted that 18 days remained before the next MPC meeting and said the period was long given developments in the Middle East and volatility in oil prices.
The bank said that, if the central bank cautiously resumed its rate-cut cycle, markets could start pricing in larger reductions, potentially strengthening the steepening trend in the yield curve.
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